Features

Ryan believes that a CEO should spend more time on recruiting and managing people than on any other activity, and that the head of HR is one of the most important people in the company. He insists on his freedom to bypass managers and speak with any employee at any time. And he espouses certain talent-management principles, such as that your best people are usually underpaid (reward them with performance pay) and that people leave jobs mainly because they don’t like their managers.

Recruiting at Gilt Groupe focuses on references more than on résumés and interviews because, Ryan says, résumés only establish basic qualifications for a job, and interviewers can’t help being influenced by well-spoken or attractive people. But reference checks need to go beyond the names supplied by a candidate: Employers should dig up people in their networks who are willing to speak candidly.

As the global economy vacillates between signs of recovery and omens of collapse, businesses and governments are clamping down. But the world doesn’t need austerity; it needs audacity—bold, inventive ideas that take on big problems. So HBR asked experts from a range of disciplines to propose them.

Robert J. Shiller believes an innovative form of national financing can solve the global debt crisis. Enric Sala has a radical but simple idea for saving the oceans. Bruce Gibney and Ken Howery want venture capitalists to bet on breakthrough start-ups. Bruno S. Frey and Margit Osterloh argue that corporations have been hurt by pay-for-performance schemes and should toss them. Ellen Gustafson says we can end obesity and famine by changing the way we produce food. Gregg Easterbrook thinks NASA must find an affordable way to reach Mars. Doc Searls argues that companies should ditch their data and let consumers direct transactions. Ellen Goodman believes we can change the way we die. Wayne Porter has a new vision for Afghanistan. Linda A. Hill and Kent Lineback say crowdsourced reviews will make executives better managers. Parag Khanna and Karan Khemka think for-profit universities will jump-start the global economy. Arun Majumdar is looking for a battery to serve the bottom of the pyramid. And Eric Schmidt thinks social-impact bonds could transform the prison system.

Capitalism remains the most powerful, flexible, and robust system for driving broad-based prosperity and enhancing quality of life. But keeping capitalism on track will depend on our ability to rethink the priorities that guide everyone in the system, from entrepreneurs to regulators to investors. In particular we will need to throttle back the headlong pursuits of competition and ROE, and that process begins with recognizing them for what they are: runaways. The runaway, a concept from evolutionary biology, is explained best by the peacock’s tail. That feature grew ever more flamboyant across the centuries thanks to a simple fact: Peahens showed preference for large-tailed mates. But after many generations the tail created a problem: It required more nutrients and was heavy, slowing down its owner and making him easier prey—eventually causing the peacock population to decline. Capitalism is on a similar runaway trajectory, say Meyer and Kirby, mostly because it has taken the ideas of competition and ROE—brilliant in their time—too far. By reining in these metrics and developing new ones more suited to today’s world, we can reformulate capitalism and break the runaway cycle.

Spotlight

Gross domestic product has long been the chief measure of national success. But there’s been a lot of talk lately about changing that, from economists and world leaders alike.

GDP is under siege for three main reasons. First, it is flawed even on its own terms: It misses lots of economic activity (unpaid household work, for example) and, as a single-number representation of vast, complex systems, is inevitably skewed. Second, it fails to account for economic and environmental sustainability. And third, readily available alternative measures may reflect well-being far better, by taking into account factors such as educational achievement, health, and life expectancy.

HBR’s Justin Fox surveys historical and current views on how to assess national progress, from Jeremy Bentham to Robert Kennedy to Nicolas Sarkozy. He also looks at where we may be headed. The biggest success so far in the campaign to supplant or at least supplement GDP, he finds, is the UN’s Human Development Index—on which the United States has never claimed the top spot.

Only recently have we been able to apply science to one of the world’s oldest questions: “What is the nature of happiness?” In this edited interview, the author of the 2006 best seller Stumbling on Happiness surveys the field. Gilbert explores the sudden emergence of happiness as a discipline, reviews the major findings (including the mistakes we all make in predicting how happy or miserable we’ll be), and examines the role of happiness in productivity on the job. He describes what makes us truly happy—it’s not a promotion or a new house—and sketches out a “happiness diet” that emphasizes small, routine efforts.

Looking forward, Gilbert discusses the breakthrough work of his colleague Matthew Killingsworth, whose iPhone-enabled real-time surveys of people’s moods are providing an ultra-high-resolution picture of how our emotional states shift from minute to minute. A sidebar by Killingsworth offers a preliminary look at his findings and their implications for our personal and workplace lives.

What makes for sustainable individual and organizational performance? Employees who are thriving—not just satisfied and productive but also engaged in creating the future.

The authors found that people who fit this description demonstrated 16% better overall performance, 125% less burnout, 32% more commitment to the organization, and 46% more job satisfaction than their peers.

Thriving has two components: vitality, or the sense of being alive and excited, and learning, or the growth that comes from gaining knowledge and skills. Some people naturally build vitality and learning into their jobs, but most employees are influenced by their environment.

Four mechanisms, none of which requires heroic effort or major resources, create the conditions for thriving: providing decision-making discretion, sharing information about the organization and its strategy, minimizing incivility, and offering performance feedback. Organizations such as Alaska Airlines, Zingerman’s, Quicken Loans, and Caiman Consulting have found that helping people grow and remain energized at work is valiant on its own merits—but it can also boost performance in a sustainable way.

Most of us assume that success will lead to happiness. Shawn Achor, founder of the corporate strategy firm Good Think, argues that we’ve got it backward; in work he’s done with KPMG and Pfizer, and studies he’s conducted in concert with Yale’s psychology department, he has seen how happiness actually precedes success.

Happy employees are more productive, more creative, and better at problem solving than their unhappy peers.

In this article, Achor lays out three strategies for improving your own mental well-being at work. In tough economic times, they’re essential for keeping yourself—and your team—at peak performance.

In the 18th century, the Enlightenment ushered in the notion that happiness was the attainment of a worthy life. Since then the pursuit of happiness has spread to every aspect of behavior, from religion and politics to work and parenting. Today the happiness imperative creates pressures that, paradoxically, can make us miserable. Sadness is often mistaken for a pathology. Understanding the cultural commitment to good cheer as an artifact of modern history, not as an inherent feature of the human condition, opens new opportunities for understanding key facets of our social and personal experience.

Features

Steady, predictable growth is what every big company strives for, and what investors prize above all else. McGrath set out to discover how many companies actually deliver. To meet her initial criteria, a company had to have a market capitalization of at least US$1 billion and to have grown by 5% each year over a five-year period. Only 8% of the companies in her sample of 4,793 qualified. When the five-year period was doubled, only 10 companies qualified—and of those, only five had grown both revenues and net income every year.

The success of these “growth outliers” can’t be explained by industry, company age, ownership structure, global location, or economy (emerging versus developed). They do, however, share a lot of practices. For example, they diversify their portfolios with early, small bets; manage major resource allocations centrally; focus attention on culture and shared values; and hold on to their talent. Their practices add up to an intriguing, counterintuitive profile: Although they are nimble and adaptive, their leadership, strategy, and values are extraordinarily stable. The author concludes that this seeming paradox is a feature, not a bug: Stability is what enables these companies to innovate and to maintain steady growth.

An increasing number of social entrepreneurs and investors are realizing that social enterprises of all sorts, including many organizations regarded as charitable nonprofits, can generate returns acceptable to the financial markets. The key is to view the funding of social enterprises as a problem of financial structuring.

If they treat charitable donations as a form of capital that seeks social, not financial, returns, organizations can then tap traditional sources of funding: venture capital firms, banks, mutual funds, bonds, and so on. And with access to these sources, they can make use of all the tools for transferring risk and return, allowing them to free up capital and grow.

For this to succeed, the social enterprise sector will need to create greater precision and transparency around measuring and reporting social outcomes, and policy makers must build the necessary market infrastructure and legal frameworks. With these efforts, social enterprises could have a larger universe of investors than conventional businesses do. This would be a significant step toward a greener, healthier, and more equitable world.

Too many retail managers believe that they must offer bad jobs to keep prices low. As a result, almost one-fifth of American workers suffer low wages, poor benefits, constantly changing schedules, and few opportunities for advancement. The author’s research reveals, however, that the presumed trade-off between investment in employees and low prices is false.

To meet short-term performance targets, many retailers cut labor. The unmotivated and poorly trained employees who remain often cannot keep up with their tasks in a complex operating environment. The result is a vicious cycle, in which lower sales and profits tempt managers to cut even more employees.

Retailers such as QuikTrip, Mercadona, Trader Joe’s, and Costco instead create a virtuous cycle of investment in employees, stellar operational execution, higher sales and profits, and larger labor budgets. They also make work more efficient and fulfilling for employees, improve customer service, and boost sales and profits through four practices: simplify operations by offering fewer products and promotions, train employees to perform multiple tasks, eliminate waste in everything but staffing, and let employees make some decisions.

Trying to operate two business models at once often causes strategic failure. Yet LAN Airlines, a Chilean carrier, runs three models successfully. Casadesus-Masanell, of Harvard Business School, and Tarziján, of the Pontificia Universidad Católica de Chile, explore how LAN has integrated a full-service international passenger model with a premium air-cargo business model while separately operating a no-frills passenger model for domestic flights.

LAN’s multimodel success comes from recognizing the complementarity of its two high-end services and the distinct, or substitute, nature of its no-frills offering. LAN came to that insight by analyzing the major assets that the models share and the compatibility of the models’ operational resources and capabilities. It recognized that the more the models have in common, the more likely they are to generate greater value together than apart; the less they share, the more likely they are to be best executed separately.

Nevertheless, managing multiple models is a tall order. LAN has had to face greater complexity, broaden its organizational skills, increase the flexibility of its workforce, and make other investments. But by mastering three models, the company has built formidable advantages that are difficult for competitors to overcome. Its example has shown how, properly applied, the implementation of multiple business models is not a risk but rather a new tool for strategists.

Experience

Over the past decade companies have become more global and employee groups more diverse than ever before. Organizations are less hierarchical and more collaborative. And today’s offices are full of once unimaginable technological distractions. We asked experts in cross-cultural communication, information networks, and the science of attention what skills executives should cultivate to tackle these new challenges. Molinsky thinks that managers must overcome psychological barriers in order to act in ways that other cultures find appropriate. Davenport and Iyer explain why the devolution of hierarchy has increased the value of building and wielding influence through digital networks and offer tips for how to do it. And Davidson tells managers to get over their fears about distraction and embrace the brain’s natural tendency to divide attention.